Many factors and issues must be entertained when one considers the advantages and disadvantages of employer-sponsored health insurance. Although employer-sponsored health insurance appears to be advantageous due to its consequent additions to insurance risk pools and the employers’ mass insurance negotiating power, careful consideration of the salary-based deduction from employees’ paychecks, possible restriction of exit opportunities, and limited influence of employee preference leads one to conclude employer-sponsored insurance is not beneficial to employees. The stage of an employee’s life and his or her health conditions also play a significant role when debating the value of employer-based health insurance coverage.
The primary obstacle of health insurance is the cost. In health insurance’s infancy, it primarily covered large expenses after the initial deductible had been paid. In that regard, only massive expenses after the deductible were covered. In this model, health insurance was considered a “black hole” that individuals paid into. Individuals only realized the value of the safety net once they had suffered a catastrophic expense that would have been financially draining. The inclusion of preventative care in private insurance morphed this conception of insurance being a black hole into a beneficial product worth investing in.
Employer-sponsored coverage makes health insurance widespread because individuals are not as concerned that they are personally investing in a “dark hole.” More people with health insurance means there are greater numbers of people in the risk pools and that the overall cost of insurance per person is decreased, resulting in lower health insurance premiums for all. Employer-sponsored health insurance is advantageous when one considers the influence of risk pool expansion causing lower premiums. According to the U.S. Census Bureau in 2010, 16.3% of all people were without health insurance, while 55.3% of people were covered by employment-based health insurance. 30.8% of unemployed laborers in 2010 still received health insurance coverage from their former employers when they most likely would have been unable to afford it on their own otherwise. Clearly, a large majority of the population depends upon employment-based insurance and adds to the risk pool.
Employer-sponsored insurance also seems advantageous when one considers the cost of insurance the employee would have incurred had he not purchased it in a group with other employees. Companies are typically able to negotiate lower rates and premiums with insurance companies because of the business monopoly the company delivers to the insurance carrier. Employees would most likely pay a greater quantity for the same level of benefits in the form of a higher premium and/or deductible if they attempted to purchase the same plan without their firm’s backing. There is also intrinsic value in having a pre-setup health insurance plan offered by one’s employer. The amount of effort needed by the employee to compare plans by different insurance companies is minimized because the brunt of the work is primarily shifted to the employer. The employer must deal with the administrative hassles with insurance carriers rather than the employees.
The disadvantageous implications of employer-sponsored health insurance include the salary-based deduction from employees’ paychecks, potential restriction of exit opportunities, and limited influence of employee provider preference. The notion that employer-sponsored health insurance is not truly beneficial to the employees stems from the belief that money diverted towards insurance coverage would have otherwise been given to the employees in the form of salary or wage raises. This also translates into lost income for the government in the form of taxes because insurance coverage spending by corporations is tax deductible.
The intrinsic value and benefits that health insurance offers to employees also reduces the breadth of exit opportunities for employees. For example, employees with superior health benefits and coverage in their specific firm’s sponsored plan may emphasize the importance of these benefits over another job. Employees may be locked into their jobs if they overvalue the insurance coverage they receive. Employer-sponsored coverage is not portable and often depends upon the number of years an employee has worked at a firm, in addition to his or her title.
Lastly, employee choice is limited when the employers dictate the insurance provider. Employer-sponsored health plans contract specific networks, doctors, and hospitals for inclusion in their plans to yield cost-effective solutions. Many networks and providers that employees prefer may not be included in these prearranged, inflexible health care plans, so employees are thus constrained in their choice for care.
Another major consideration when one is debating the value of employer-sponsored health care plans is the age of the employee and his or her health situation. Younger employees, for example, are typically healthier and can arguably better utilize the money spent on health insurance by the employer if received in wage increases. Younger employees may be better off with the salary bump because their current health conditions and level of utilization of health services may not justify the cost of the insurance premiums paid by the employer. Older employees, in contrast, would benefit from greater, expanded insurance coverage and would most likely not mind a salary or wage cut because older employees typically have poorer health conditions and use health services/prescription drugs more frequently. Costly insurance paid for by the employer would be more beneficial for older employees than for younger ones. Employees of all ages, if suffering from chronic disease, would also benefit from better insurance and would outweigh the insurance benefits to the possible wage cut because they would utilize health care services and/or drugs more frequently.
By analyzing the various effects of employer-sponsored health insurance, one can assert that employees are disadvantaged when employers cover their employees under a firm-specific health insurance plan. Employer-sponsored coverage is only beneficial when one considers the ease of accessibility and potentially lower premiums offered by those plans. Employer-sponsored coverage is inconvenient if one places more importance upon the employee salary, potential result of locking employees to their employers for health benefits, and the flexibility to pick different providers. It is also important to consider one’s age, current health status, and presence of chronic disease when debating the value of employer-sponsored health coverage.